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On June 2, 2016, the US Consumer Financial Protection Bureau issued a lengthy proposed rule to regulate so-called “pay day loans.” Specifically, the proposed rule would impose restrictions on “covered loans,” defined as (i) loans with a term of 45 days or less and (ii) loans with a term greater than 45 days that (a) have an all-in annual percentage rate greater than 36% and (b) are either repaid directly from the consumer’s account or income or are secured by the consumer’s vehicle. For these covered loans, the proposed rules would deem it an abusive and unfair practice for a lender to make such a loan without “reasonably determining that the consumer has the ability to repay the loan.” In addition, the proposal would restrict lenders of covered loans from making such loans when a consumer has, or recently has had, certain outstanding loans (in general, certain loans that the consumer has had difficulty repaying).

In a statement issued concurrently with the proposed rule, CFPB Director Richard Cordray stated that the proposed rule is aimed at mitigating concerns that consumers were being “set up to fail” with loan payments that they were unable to repay, leading borrowers into a cycle of defaulting and re-borrowing, with the result being the inability of such consumers to afford other basic living expenses.